Tuesday, May 3, 2016

Does Kevin Williamson Understand Keynesian Economics?

Draconian cuts. Indeed. This is all very good, and it deserves to become law. But it also offers a dramatic illustration of how difficult it is to cut spending without cutting the areas where the spending actually happens. This may be a minuscule cut in terms of overall federal spending.. That is why spending reductions on those kinds of programs are never really enough: You have to eliminate the program entirely. Conservative populists sometimes get mocked for promising to cut entire cabinet agencies, but, in the long term, that is the most promising model for achieving a healthy fiscal balance. Obligatory reminder: None of this matters very much without entitlement reform and controls on defense spending. Non-defense discretionary spending, i.e. the stuff everybody promises to cut or cap, is a small part of federal spending.

In other words, Williamson was pushing fiscal austerity hard. On May 1, 2016, he wrote:

President Obama’s term in office was preceded by a housing crisis and a subsequent recession for which he was as much to blame as anyone then in government — which is to say, not very much….President Obama insists — straight-facedly — that in the context of a wrenching financial crisis, the United States under his leadership performed better than any major economy in modern history. That isn’t even close to being true, of course. Obama’s presidency will coincide with a remarkably weak recovery, with GDP essentially treading water. His presidency will be the first in modern times to fail to coincide with at least one year of 3 percent economic growth.

Williamson does not acknowledge the source of Obama’s claim. To be sure, the Reinhart-Rogoff finding is not gospel, but Williamson does not provide any argument against it or even provide any indication he has heard of it. Nor does Williamson provide any evidence to contradict Obama’s conclusion. Refuting the claim that the U.S. has outperformed other economies that have emerged from a financial crisis would mean naming one or more economies that have undergone a financial crisis and then enjoyed faster growth than the U.S. has since 2008. Williamson does not do so. Instead, he compares Obama’s recovery to previous recoveries from nonfinancial recessions. (And the metric he picks — whether or not the economic exceeded 3 percent growth in a single year — is ludicrously cherry-picked, as if a recovery is measured by the growth rate in its best single year, to count George W. Bush’s historically anemic economy as a success.) This follows Williamson’s assertion that Obama’s claim is false “of course” — apparently it is so obvious he needn’t bother providing even a single piece of relevant evidence against it. Update: I didn't even notice this on my first pass, but Williamson uses the term "fiscal crisis" when he means "financial crisis." A fiscal crisis is related to a country's government budget. A financial crisis is related to a country's financial system. These are completely different things.

Part of Williamson’s argument was that fiscal policy choices have little to do with the growth rate of the economy. And yet most economists blame the weakness in the U.S. economic recovery on the state and local fiscal austerity that led to an overall fall in real government purchases after 2010. Had Williamson had his way – we would have also had massive Federal austerity. In other words, Williamson had his way, our economy would likely be as bad as Europe’s.